The reasons behind Zuma’s radical economic rhetoric

The reasons behind Zuma’s radical economic rhetoric

With months to go before he relinquishes the ANC chair, President Jacob Zuma is keen to establish a legacy. Widening black inclusion in the economy is his chosen reform agenda. Behind it lies a complex set of political motivations, that will determine its success – or failure. By John Dludlu.

For months now, Jacob Zuma, South Africa’s president, has been trying, without much success to convince his critics that he cares about the economy and its management. His latest attempt, during his state-of-the-nation address in parliament on 9 February, was no different.

Ahead of the address, overshadowed by a dramatic assault, broadcast live, on opposition MPs by parliamentary security, Zuma’s allies had tried to drum up some excitement. They told journalists that the speech would be focused on hastening the pace of economic transformation – that is, the inclusion of black Africans into mainstream economic activity in Africa’s most advanced economy. Zuma, they said, had run out of patience with the snail’s pace of transformation. After an hour-long delay, the president announced to MPs and guests: “Today we are starting a new chapter of radical socio-economic transformation. We are saying that we should move beyond words, to practical programmes.”

In essence, Zuma announced that his administration would use its power, laws and licences to speed up transformation; prioritise the return of land to blacks (blacks, who lost their land to whites, would be encouraged to take land and keep it instead of cash); the willing buyer, willing seller principle would be ditched; and, his government would use its more than R1 trillion ($76.3 billion) purchasing power to favour black-owned companies when it buys goods and services (such as toilet paper, stationery, travel tickets, accommodation, food and consultants) or when building new economic infrastructure (dams, roads, ports and power stations).

The state would set up its own mining company (it already has an energy company), and moves are already underway to transform the SA Post Office into a bank.

Twenty-three years after black Africans secured political power, the economy is still in largely white male hands and white households earn five times more than their black counterparts.

Construction companies would be asked to set aside 30% of their project budgets for local communities and black enterprises. On February 14, Ebrahim Patel, Zuma’s economic development minister who is in charge of competition policy, announced that seven large construction firms, which were found to have colluded in building stadiums ahead of the 2010 soccer World Cup, had agreed to share work with black companies that they would mentor, over and above the slap-on-the-wrist R1.4 billion ($106.9 millon) penalty.

Government would use competition law to stop bullying by large monopolies. A few days later, the Competition Commission delivered a godsend by announcing that it is charging 17 local and international banks for colluding to manipulate foreign exchange rates. This came just a month after the public protector found in a preliminary report that Absa, which is owned by Barclays, might have to reimburse the state for an apartheid-era loan. It’s unclear how big the collusion is or how high the culpability goes, but it’s sweet music to Zuma’s ears. He doesn’t trust banks. He’s questioned their decision to close accounts of companies owned by his friends – the Gupta family – and these latest disclosures fuel calls for the establishment of a state-owned bank. Zuma’s frustration is understandable. Twenty-three years after black Africans secured political power, the economy is still in largely white male hands and white households earn five times more than their black counterparts. In the early days of all-race democracy, large white companies co-opted a few politically connected Africans by handing out minority shares in their companies. Over time, these transactions were broadened to include employees as well as trusts set up by non-government organisations to benefit a wider pool than the earlier wave.

Under pressure from black business, the government under Thabo Mbeki, Zuma’s predecessor, passed laws that would require companies that want to do business with government (or those needing public licences to operate) to have black shareholders and managers. This helped a bit. As a direct result of this push by government, banks and mining companies sold, at discounts, minority stakes to black shareholders and trusts representing employees.

The momentum didn’t last. In fact, such transactions have dried up in recent years. The pressure to transform has eased. Monitoring and enforcement of laws is poor. Sensing this, white companies have been quick to work out clever schemes that would tick all the boxes, but fail to pass on ownership, management and control of the assets to blacks. In worse instances, some white companies would list their gardeners and domestic helpers as shareholders without the latter knowing or benefiting, just to win state contracts. It’s taken more than a decade to set up an agency to enforce the black economic empowerment law.

Since being re-elected in 2014, Zuma has made it his mission to place the issue of black inclusion in the economy at the centre of his government’s agenda. He’s spent the last three years complaining about the low level of black ownership. The simplest and quickest way of
assessing black ownership is to use the companies that are listed on the local stock exchange as a barometer.

They remain under white ownership, with blacks owning less than 20% (the rest are owned by pension funds and fund managers
from South Africa and abroad). The majority of the listed companies are run by white males (government statistics put the latter figure at
72% of senior management). Blacks continue to own small survivalist businesses such as taxi companies and shops in the townships where competition with the Somali and Pakistani immigrants is a source of growing tension; a few remain on the boards of large companies where they are minority shareholders.

So, why is Zuma waking up now, and what does it all mean, to radically transform the economy? Let’s start with the reasons. First, with slightly under a year to go before he leaves office, Zuma is keen to create a positive legacy. His term as president of the ANC, the ruling party, ends in December, and he’s made clear he won’t seek another term. Instead, he’s trying to engineer the election of his ex-wife and outgoing chairman of the African Union, Nkosazana Dlamini-Zuma, as his successor. His term as South Africa’s president comes to an end in 2019, and in all likelihood he won’t see it out.

Second, he is becoming increasingly unpopular inside and outside the ANC. Under his leadership, the ANC is shrinking fast. Black African voters, the ANC’s base, are turning their backs on it. Last August, they rejected the ANC in municipal polls, handing over the control of Johannesburg, Pretoria, Port Elizabeth and Cape Town, a traditional opposition stronghold, to the Democratic Alliance. Therefore, championing the cause of transformation to appease the mostly young urban African middle class could help woo some back into voting for the ANC.

Third, in the rural areas (former homelands), the ANC remains safe. The voters there are old and loyal to the ANC – the only party they know. And, in return, the ANC, which is in partnership with conservative traditional leadership, has kept them loyal by extending generous social grants to alleviate poverty. As many as 17 million South Africans – old and young – receive a grant of sorts from the state each month. And by adding land onto the social grants, it could help keep Julius Malema’s Economic Freedom Fighters (EFF) from taking control of the rural areas: so goes the logic.

Demonstrators display placards and banners calling for the resignation of South African president

Alongside the nationalisation of banks and mines, land is the centrepiece of the EFF’s economic policy blueprint. To put this differently, Zuma and the ANC leadership may not actually be as interested in land reform as they want the public to believe, but they see it as vital that they keep beating the land-reform drum lest their opponents steal their thunder – and their rural votes.

There’s something quite ironic about this. After 20 years in power, Robert Mugabe, Zimbabwe’s president, also ditched the willing buyer, willing seller land reform programme in favour of a restitutional one. This occurred as his Zanu-PF was losing power to new, post-independence parties.

Fourth, and related to the preceding point, the EFF is the only party that has placed the economy, including the land issue, at the centre of its policy agenda. It’s the only party that talks about the economy consistently. The ANC pays lip service to it. Over the last four months, the ANC has spent more time on leadership wrangling than on discussing the economy, which is stuck in a slow-growth rut.

And, finally, there’s something cynically personal about this radical economic transformation rhetoric. The last few years have been especially good to the Zuma family. His only son, Duduzane, has become a billionaire. Zuma’s friends, the Gupta family (also business associates to Duduzane), haven’t done too badly either. The Gupta empire, which started as a modest computer company, now includes mining and media. Lately, they’ve been making forays in the financial services industry. So, talk of mass empowerment or radical transformation – including the
creation of black industrialists – also serves the useful purpose of deflecting attention from the First Family’s accumulation of wealth.

The state wasted almost R50 billion last year through fruitless and irregular expenditures.

While Zuma is correct to be frustrated about the pace of transformation, his remedy appears a bit misplaced. The country has sufficient laws, cash and institutions to speed up transformation. It doesn’t require root-and-branch reform or a new battery of instruments or new agencies or even money for that matter. A few things are lacking though. For one, implementation of existing laws and regulations is tardy, and the state’s record of establishing new agencies is disappointingly poor. For example, the state still relies on private businesses to distribute R10 billion worth of social grants each month. This is despite its long-stated intention to start paying these grants directly to beneficiaries. The idea of a state mining company has been on the table for years with little traction.

Then there’s the issue of mixed priorities and the mismanagement of existing resources. For example, the auditor-general Kimi Makwetu reported that the state – departments and parastatals – wasted almost R50 billion last year through fruitless and irregular expenditures. The National Treasury, which is under pressure to control spending (which largely goes to salaries and debt service), is trying to wring out discounts from suppliers. This has hurt primarily black suppliers, and explains why black business hasn’t rushed to the Treasury’s defence in its fights against the president and his friends. Also, most of the large procurement transactions are marred by corruption involving ruling party officials. Large multinationals are selling their South African assets and investing abroad or sitting on piles of investible funds because
of policy uncertainty, growing graft and an increasingly bellicose cabinet. Finally, infighting amongst Zuma’s ministers is likely to stymie his push for radical economic transformation.

So, instead of advocating radical economic transformation, Zuma was merely radical in the rhetoric of transformation.

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